Winter 2004

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Guest Commentary

Julie Meier Wright, president and CEO of the San Diego Regional Economic Development Corporation, was secretary of trade and commerce under Governor Pete Wilson. She serves on
Governor Arnold Schwarzenegger's Economic Recovery Council. This commentary was originally published December 7, 2003 in The Sacramento Bee’s Forum section. (Reprinted with permission.)

The October election told us a great deal about what voting Californians wanted. They wanted change. They responded to a candidate who offered hope and optimism. They resonated with a commitment to fix the state's broken finances and the worst business climate in the nation.

The most urgent need of California business today – and a key subject of the special session and priority of Gov. Arnold Schwarzenegger – is massive workers' compensation reform. California's system is by far the most expensive system in the country, having grown from $9 billion in 2000 to more than $20 billion this year, even with recent reforms. The system is truly broken and, with the loss of numerous insurance carriers, rapidly heading toward being another state program with out-of-control costs.

According to state Sen. Chuck Poochigian (R-Fresno), California employers have seen their workers' compensation premiums increase an average of 70 percent in the last two years, bringing the average workers' compensation premium up from $3.34 per $100 of payroll to $5.85. The national average is $2.46. Current year numbers in California have worsened, but we don't have the national numbers as yet.

And those costs are not just hitting business. They impact every school district, every college, every university and every level of government – as well as non-profits like mine – at a time when resources are scarce.

In the City of San Diego, total costs for workers' compensation have risen from about $11 million in 1997 to more than $25 million in the last fiscal year – a double-digit increase in every year but one. What's particularly frustrating to city officials is that they have done an outstanding job managing claims – on a per capita basis, their claims have gone down significantly. And yet their costs have skyrocketed.

The San Diego Community College District – a self-administered, self-insured system – has held costs fairly steady until this year, when they are projected to more than double to reflect recent legislation. The Cal State University System -- and San Diego State University -- are in a similar fix. Both are seeing their budgets for workers' compensation go up more than 40 percent this year. Systemwide, the costs to the Cal State University System will be nearly $50 million.

At the San Diego Regional Economic Development Corporation, our workers' compensation costs have gone up more than 108 percent in three years -- and we have never had a claim. For companies, for schools and for government, the costs of this out-of-control program cause painful decisions to be made. Decisions that hurt every Californian.

We pay as employees because our employers are forced to reduce other benefits, curtail investment in new product development that may be important to the future of our company or limit creation of new jobs. We pay as taxpayers because it's our money that funds the costs of workers' compensation in education and in state and local government. Our elected leaders must make hard choices about investment in infrastructure and needed programs and staff, including those that make government more business-friendly. And we pay as consumers because the cost of workers' compensation is priced into every product or service that we buy.

Some expenses, even important ones, get deferred by companies and by government – but not workers' compensation.

We can spend a lot of time trying to place blame for today's problems, but doing so is unproductive. And it potentially discourages our elected officials from bold actions on future public policy challenges. That's not a desirable outcome, given the many complex challenges that face our state.

In workers' compensation, we made major reforms in 1993, reducing the cost of the system by a third. Time has revealed certain flaws in those reforms, and it should not have taken until 2003 to address them. Today we should applaud that attempt at fundamental restructuring of the system, but vow to continually monitor the impacts of legislation and move quickly to fix problems.

Poochigian's bill for the special session, SB 3, provides the roadmap for the desperately needed changes to the system – changes that will enhance protections to truly injured workers and enact the dramatic cost reductions needed for employers – public, private and non-profit. At a time of stretched resources on the public and non-profit side, it will free up money for essential priorities.

As important, swift action on a comprehensive set of workers' compensation reforms will send a strong message to employers that California is striving to be business-friendly once again.

When former Gov. Pete Wilson and the Legislature passed sweeping business climate reforms in 1993, I said then, "We can't declare victory on the business climate and ignore it. It's a continuing process to benchmark ourselves against hungry competitors who would love to have the industries and companies we have." That attention has lagged in recent years, and, as a result, the Legislature has much to do.

We have a new governor who has pledged to work with Republicans and Democrats. He has done an impressive job of reaching out to members of the Legislature. He has defined a bold, tough and necessary early agenda focused heavily on the budget and the business climate – two of the most important things the Legislature must address, not just in the special session but as an ongoing responsibility to the people of California.

Schwarzenegger took an important step when he suspended regulations pending further review of their necessity and their impact on business. Further forensic audits of all state agencies and departments will ultimately be needed to ferret out waste and to assist in streamlining the programs that remain. Here government can take a cue from the private sector, which has long embraced such continuous process improvement to stay competitive.

In my time in Sacramento, we continually benchmarked California against our competitor states. We looked at taxes, regulations, workers' compensation, workforce issues, overall business friendliness measures. Not only did such efforts remove some of the partisanship from public policy discussions, such benchmarking provided valuable information on how attractive we were for business investment. We're not very attractive right now.

Undertaking an objective benchmarking of our state's competitive position has never been more important than it is today. Long term, the growth engines of our economy are global companies that must be able to compete from a California base – or they will locate elsewhere.

They need an educated workforce, efficient regulatory structure and public policy that recognizes that they and their employees are the source of the revenues that fund government at all levels. It isn't about total job numbers – it is about job growth in high-tech, biotechnology, advanced manufacturing and the other industries that bring wealth to our state by selling goods and services around the globe.